The taxpayer, who had farmed farmland as his only source of income, transferred the farmland to a partnership with his spouse, with their interests therein qualifying as "interests in a family farm partnership." Following 5 years and due to poor health, the farmland then was leased to an arm’s –length farmer. The partnership then was wound up pursuant to s. 98(3) and continued to be leased to the farmer. After noting that if the farmland were sold by the partnership immediately prior to the winding up of the partnership, the resulting capital gain on the disposition could qualify for the s. 110.6 exemption, CRA then was asked: if the farmland was held personally by the taxpayer and his spouse for a period of at least 24 months after the winding up and was leased to the arm's length farmer, would the capital gain from the subsequent disposition of the land qualify for the exemption? After referring to (vi)(B) of the former ‘qualified farm partnership” definition, CRA stated:
[A]ny 24-month period preceding the particular time - the time of the sale - may be used to determine whether the requirements of clause (B) are satisfied. Thus, we are of the view that the 5-year period during which the partnership - in which the taxpayer and his spouse held interests in a family farm partnership - used the farmland principally in the course of carrying on a farming business in Canada can be used to satisfy the requirements of clause (B). Indeed, during this period, you indicated that the taxpayer and his spouse were actively engaged on a regular and continuous basis in the farming business as carried on by the partnership.